Where’s the money coming from?A private equity fund (PEF) where Cho Kuk — justice minister nominee and former senior Blue House secretary for civil affairs — and his family placed a substantial amount of their wealth has become another source of bafflement in Cho’s personal life. After the fund drew money from Cho’s family, its operator’s assets ballooned by 5.3 billion won ($4.4 million). Where the gift came from and why it was given remains a mystery.
Cho claims no wrongdoing. He cited that public employees are regulated for stock investment, but not for fund investment. Cho reported 5.6 billion won as his personal wealth to the authorities. But he pledged to invest a whopping 7.4 billion won in Blue Core Value-Up 1 which is managed by Kolink PE, and he has already placed 1.05 billion won in the fund. Despite the huge investment, Cho claims he does not know exactly where the funds were invested. The fund is currently going through the liquidation process after generating negative returns, he said.
A PEF is unlike the regular public-offered fund which collects monthly deposits. It is restricted to 100 or fewer investors and privately placed as a high-stake and high-return instrument. A PEF has that much freedom for operation and less obligation to disclose its management. But it must inform its investors of the management. Only the most skilled get into the high-stakes game. The fund is mandated to provide a quarterly report on its performance to its investors.
The industry also questions why the fund has invested heavily in a certain maker of a remote control system for traffic lights. The product may have benefited from the government’s pledge of 26 billion won into smart city projects.
Opposition Liberty Korea Party (LKP) Rep. Kim Jong-seok cited Article 11 of the fund’s payment incompliant provision to suggest that if Cho’s wife did not make full payment, she could opt to yield half of contributions and deferred interests to her children without paying any taxes. The article states that if the investor does not fully pay the investment within 30 days, he or she must pay penalty up to half of the investment and surrender it to someone else.
The biggest mystery is the 5.3 billion won that was funneled into Kolink PE and changed the company’s balance sheet from red to black. Cho made the investment two months after he was appointed the senior civil affairs secretary to President Moon Jae-in. The money went into the fund manager in the following year. The fund attempted to buy a building from Hanwha Galleria and Cho’s nephew suspiciously led the fund’s effort to draw investment from China. The financial authority must investigate who invested in the PEF other than Cho’s family and where Cho’s money came from.
JoongAng Ilbo, Aug. 22, Page 30